Signed something you've later regretted? All is not lost in law - Spear's Magazine

Signed something you’ve later regretted? All is not lost in law

‘One of the strengths of English law is that there are cases where the court will look past the strict letter of what was done and look to the “conscience” of what should be done’

SIGNS OF THE TIMES

‘One of the strengths of English law is that there are cases where the court will look past the strict letter of what was done and look to the “conscience” of what should be done’ 

 

A recent decision of the Supreme Court (in two joined-up cases called Futter v HMRC and Pitt v HMRC) has reviewed the circumstances in which documents that have been signed can be set aside when things do not turn out as intended. 

English law has always worked on the unsurprising principle that, if you sign a document, you are bound by it. Traditional deeds were prepared almost as works of art and the final version on parchment, witnessed independently and executed under seal, was the end result of a long process. Because documents were written by hand, the natural inclination of the draftsman was to be concise and to include only the essentials that made the deed operative. This meant that the draftsman thought much more carefully and the documents were all the better for it.

Over the past 40 years, the advent of standard documents, from word-processed and computer-generated precedents, has taken away that need to be concise. Those producing documents do not tend to get prizes for taking clauses out of precedents. 

 

No escape

In times past, the ultimate defence for a person who wanted to set aside a document that he had signed was the doctrine of ‘non est factum’. All it meant was ‘this is not my deed’. Cases of this sort tended to have somewhat exotic facts, such as a document being put in front of a party who was required to sign it although the terms were hidden from that person by covering up the page. You can see that this recognised either duress or fraud, where the document described was entirely different from what it actually said. 

The doctrine then was extended to allow for a clear element of mistake, not just as to the nature of the deed but also to the consequences of it. There arose a principle which was popularly known as the Rule in Hastings-Bass, and it was the development of that rule over the past 45 years which led to these cases in the Supreme Court concerning actions taken by trustees in dealing with trust property. 

Pictured above: The Declaration of Independence. It's never too late!

The rules for tax in this area are immensely complicated, and in these cases trustees had taken a number of decisions which, either by mistake or sometimes from poor advice, led to exposure to tax liabilities which were a very unwelcome shock. The trustees naturally said that if they had known then what they knew now, they would not have entered into that transaction and, as they were acting for the benefit of the beneficiaries, they should be allowed to set that aside to protect the trust fund. 

In the case of Futter v HMRC, the Supreme Court called a halt to the development of this principle and said that unless trustees had, in the
document they executed, gone beyond the boundaries of the powers they had under the trust, then the document had to stand, and if there was an unexpected tax liability it had to be paid. No doubt the advisers would shortly be hearing from trustees asking for damages for bad advice and expense incurred. 

The case of Pitt v HMRC was of a different order. Mrs Pitt was the receiver of damages under the Mental Health Act for her husband, who had been seriously injured in a traffic accident which left him mentally incapacitated. However, the damages were put into a trust which did not comply with the statutory requirements for this sort of case; as a result, inheritance tax became payable on the creation of this lifetime trust. 

The Supreme Court said that, in this context, the mistake was so fundamental to the transaction in question that justice demanded that the settlement should be set aside. It was not just that it had turned out badly — the trust would never have been created with an upfront tax charge attached to it. 

 

Proving the rule

One of the great strengths of English law is that there are certain cases where the court will look past the strict letter of what was done and look to the ‘conscience’ of what should be done in accordance with the great concept of ‘equity’. Is it really right that a transaction should proceed when it is so clearly at odds with what was intended? The emphasis of the court was that there will have to be compelling evidence to show the fundamental mismatch with what was planned. 

Similarly, with the concept of rectification of a document, if a mistake is made then the person has to get to court quickly to ask that it be put right, and again there has to be very clear evidence that there was a mistake and not that the parties were merely having second thoughts about the transaction.

If you sign a document, you must expect to be bound by it and it behoves us all to be very careful about what it is we are signing. 

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